Costs of Research and Research VERA Timothy J. O’Leary Adapted from a talk presented by Tony DeCrappeo, Council on Governmental Relations

Accounting principle: Direct Costs: Costs Specifically Identified to Individual Research Projects Indirect Costs: Costs Incurred for Common or Joint Purposes

VERA One possible interpretation of the research VERA appropriation: Research VERA should pay for Clinician salaries Expenses that would normally be considered indirect (F & A) costs.

Typical direct costs Salaries & fringe Benefits – Work of employees Travel related to performance of project Lab supplies Consulting and other specialized services Subcontracts

Indirect costs Costs of Facilities – Operation of Research Labs Buildings and equipment Utilities Custodial services Maintenance and repairs Security Radiation safety Hazardous waste disposal Library services Administrative services

Indirect costs (cont’d) Administrative Services Sponsored Project Services  Protection of human subjects  Controls over care and use of animals  Scientific and financial regulatory compliance  Review and processing of grant applications  Grant accounting and reporting General Administrative Services  Purchasing  General accounting  Information systems  Human resources

Negotiation of indirect cost rates Proposed Rates are Reviewed/Audited, and Negotiated by Cognizant Federal Agency Acts for All Federal Agencies Only Two Agencies Do IDC Rate Negotiations – HHS and ONR Process Governed by Federal Guidelines - OMB Circular A-21

History – Federal Policy Movement from Flat Rates/Capped Rates to Cost Reimbursement Movement from General Cost Guidelines (Principles) to Extensive, Detailed Rules First Cost Principles: 1947 Navy “Blue Book” – 13 Pages Circular A-21 First Issued 1958 Revised Numerous Times – Last Revision 2004 Current Version – 58 Pages (Much Smaller Print)

Recent History Some Recent Agitation DOD 2008 Appropriations – Cap on Basic Research F&A Costs  35% of Total Costs  Equates to Approx. 53.8% Cap on Indirect Costs as a Percentage of Direct Costs New HHS Negotiator’s Manual  Tougher Positions in Certain Areas

Importance to research Indirect costs represent services essential to research Impossible to do modern research without incurring these costs Someone must pay

Trends in indirect costs F&A Rate surveys show that university F&A rates have held relatively constant at approximately 51 percent for at least the past six years. F&A payments as a percentage of total funds awarded by NIH was stable at 28.5% for fiscal years , according to a recent study by the Government Accountability Office.

Comparative F&A Costs Although no recent studies directly compare the costs of research conducted at universities with private industry, a 1996 study by Arthur Andersen & Co. showed that universities spend less on F&A costs than industry (31 percent of total costs versus 36 percent of total costs).

University contribution to research costs A RAND study in 2000 estimated that universities were subsidizing between $700 million and $1.5 billion of F&A costs associated with federal projects as a result of various agency limitations, cost sharing requirements, and other related factors. Universities are the second leading source of funds for university- based research. The FY06 NSF Survey shows that universities contribute more than $9 billion of their own funds to support their R&D activities, or nearly 20 percent of their total research and development expenditures. Affiliated universities carry on many support activities for VA medical center research.